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Electric vehicles in the US: Out of the shadows

Detroit, March 2023

Electric vehicles in the US: Out of the shadows

Detroit, March 2023
T

he time in which electric cars had been a phenomenon limited to the west coast tech community is over – in a market where a V8-powered pickup truck has long epitomized people’s perception of a car, electric vehicles (or EVs) made up 6% of US light vehicle sales in 2022. And more than 30 million EVs will have been sold cumulatively in the US by 2030 , when the country will likely be the biggest single EV market after China.

The US EV customer: They say it’s all about the money – but is it really?

TOP 3 CUSTOMER PURCHASE CRITERIA 

(by country, general customer)

Source: Ipsos 2022 Mobility Navigator Module 1, Berylls

Incumbents and new entrants face a US EV customer that is significantly different from its European and Chinese counterparts. An international survey of customers shows that while US customers only cite ‘economic’ reasons as their top three purchase criteria, Chinese customers also place a premium on safety and sustainability while German customers love the thrill of driving. While US customers generally have an affinity for digital channels during the research and vehicle configuration stages of the customer journey, they still have a stronger preference for dealership visits when interacting with salespeople and completing the purchase or leasing of a vehicle; Only 58% of US customers are interested in contacting salespeople online2.

TOP 3 CUSTOMER PURCHASE CRITERIA 

(by US customer persona compared to US general customer)

Source: Ipsos 2022 Mobility Navigator Module 1, Berylls

Beyond international differences, there are also three distinct attitudinal groups among US car buyers. Early EV adopters (current EV owners), EV considerers (those strongly considering EVs as the next purchase) and EV skeptics (currently not considering an EV) differ significantly in terms of their socio-demographics and top three purchase criteria. While EV adopters care about CO2 emissions and environmental sustainability, EV skeptics and EV considerers put a stronger weight on functional and economic aspects when evaluating EVs.

Yet, US buyers (especially skeptics) are contradictory. In the Ipsos 2022 Mobility Navigator EV survey, US buyers cited good fuel economy, maximizing residual value, and low total cost of ownership (TCO) as their top three vehicle features. However, in reality the F-150 – the top-selling vehicle in the US – is among the lowest of any car sold in the US3 in terms of fuel efficiency (range of EPA-estimated combined fuel efficiency of 12-25 MPG depending on trim)4. It becomes clear that beyond economic factors the size and versatility of vehicles are clear purchase drivers for the US population. Fortunately, it is not an absolute necessity to convince the skeptics in the next few years – the segment of considerers is large enough to fuel the EV growth until 2030 and will certainly expand as EV technology shifts toward mainstream prominence.

What is in it for me? Mass EV adoption will accelerate with cheaper EVs and customer education

Today, even EV considerers see a gap between their willingness to pay and current EV prices. 36% of US customers said vehicle sticker price is a top three purchase factor, and 48% of customers say they are not willing to pay a premium for an EV2. Yet the December 2022 average transaction price of an EV was $12,0005 more than an ICE vehicle6. While Tesla and Ford (among others) have recently cut MSRPs on the Model Y (up to 20%)7 and the Mach-e (up to 9%)8 respectively, the ‘price-willingness to pay delta’ coupled with slim profit margins will require OEMs to move beyond the tactical (pricing) level. A sustainable EV business model will benefit from significant advances in OEMs’ supply chain and production (e.g., EV vs. ICE price competitiveness is expected when battery cost falls below $100/ kWh9) and smart exploitation of purchase and production incentives (see the second part of our series for further details).

Considering the high share of vehicles financed or leased in the US (above 80% over the last three years)10, monthly payments may play an even stronger role than list prices. Narrowing the current delta between gasoline and EV leases ($337) and loans ($210)7 requires OEMs to increase residual values of vehicles – e.g., through advancements in battery durability, parts quality and vehicle certification. In addition, creative expansion of their businesses along the vehicle’s life will further contribute to attractive BEV economics.

MINIMUM ACCEPTABLE RANGE

(% of respondents, by US consumer persona)

Source: Ipsos 2022 Mobility Navigator Module 1, Berylls

While price deltas between ICE and EV are (still) factual, other differences are (only) perceived by customers – particularly in terms of driving range and cost benefits. Customers’ minimum range requirements differ by persona. Unsurprisingly, BEV skeptics have the highest range requirement while BEV considerers have the lowest. Most early adopters state a requirement of under 300 miles. As so often in car buying, buyers’ stated requirements are based on the exceptional use, considering the average daily driving distance in the US is only 25 miles2. While the evolution of battery technology (and thus increase of range and reduced charging time) may narrow parts of this gap, customer education and practical experience will be paramount in addressing customers’ greatest EV concerns around range and charging anxiety, affordability and product availability to turn skeptics into adopters. While OEMs have to carry customers to the brink of consideration, dealers will be key in familiarizing customers with the practicalities of EV infrastructure and pros and cons against their gasoline counterparts. Federal and state governments can play a supporting role reassuring customers around EV incentives and infrastructure.

Communication to customers will similarly help to underline EVs (potential) TCO advantages. 40% of BEV skeptics say that a concern about owning an EV is higher TCO. Yet, for two models of similar segment and size, an ICE vehicle can be more than 20% more expensive to run depending on the length of ownership11.

The gaps in perceptions and buying preferences are narrowing fast in the US. Over the last three years, the proportion of US buyers contemplating an EV for their next purchase is up to 49% (up 19 points) compared to both Chinese buyers (72%, up 7 points) and German buyers (37%, up 14 points)2. The race is on.

Out of the shadows: A dedicated US EV (product) strategy is no longer optional

EV SALES FORECAST BY COUNTRY (US, CHINA, EU5)

(2021-2030, in thousands of units)

Source: Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022

While the current US EV share cannot compete with Europe, the US will battle the EU5 for the runner up position behind China in volume terms – with both regions forecasted to show annual EV sales above 6mn units by 2030. With the Inflation Reduction Act aiming to provide an answer to China’s Made in China 2025 initiative and the Detroit Three announcing investments of more than $115bn in electrification by 202612, the US is positioning itself to move from EV niche to necessity. EVs are forecasted to grow quicker in the USA than in any other market (34% CAGR 2021-2030) vs. China (22%) and EU5 (33%)1. Considering this growth and the substantial size of the US EV opportunity combined with US customers’ explicit and implicit product requirements, OEMs can no longer treat the States as another platform to sell their Europe/China-centric vehicles – a dedicated (product) strategy is required.

The pickup truck, America’s sweetheart? Or will SUVs dominate the US EV landscape?

While the (outside) perception may be that US customers drive pickup trucks above all else, EV growth has had different sources so far. Customers rated their top three vehicle classes when shopping for a new vehicle (irrespective of powertrain/ fuel type) as a mid-sized car (41%), mid-sized SUV (37%), and a small SUV (31%)2. By the end of the decade, electric SUVs are expected to make up 60% of the EV market1. While the pickup market will remain dominated by only three US brands, the SUV landscape is significantly more fragmented. The US EV game will be decided here.
US EV VS. ICE SALES BY SUB-SEGMENT


(2021 vs. 2030, in thousands of units)

Source: Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022

Melting ICE: US electrification will make a third of ICE capacities redundant by 2030

By the end of the decade, EVs will have taken around a third of the US market. That also means that the US market for internal combustion engine (ICE) vehicles is set to shrink, and fast. In parallel a substantial part of the EV capacity will come from newly constructed EV plants – Tesla, Polestar, Lucid and VW, among others, have all announced or begun large capacity EV projects in America. Legacy ICE capabilities across the value chain therefore face a tremendous transformation challenge; the majority of automotive CEOs are concerned about capability gaps in their organization13. Upstream EVs will require new chassis, body-in-white, E/E and e-drive capabilities (among others). The ramp-up and holistic industrialization of these capabilities will be the deciding factor: From the shopfloor to the board room and back again.

SALES FORECAST BY POWERTRAINS

(2021-2030, in thousands of units)

Source: Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022

Also, downstream the impact is already visible: the reactions by dealers range from going all into electric to leaving the party (e.g., GM). OEMs have begun dealer EV certification levels (e.g., Ford) and more fundamental (online) shifts to the sales process (e.g., Acura).

So what? Now what?

The question for OEMs, suppliers, dealers and other automobility players is not if and when, but how to participate in the US EV market now. The US will become the second biggest single EV market by 2030 and will be growing faster than any other region1. The specific demands of US customers will necessitate a US-centric product strategy, which goes beyond derivatives of Europe/Asia-focused platforms. New entrants and niche manufacturers face the additional complexity of having to realize sufficient volumes of such local products for scale economies, while keeping the costs of ramping-up the supporting sales/after-sales footprint to a minimum.

Look forward to part two of our US EV study: We will discuss various market factors that OEMs will need to pay attention to in the race to electrification including competition, policy, infrastructure, funding, and dealership laws.

Sources:

1 Berylls Strategy Advisors analysis and extrapolation including (among others) sales data from S&P Global Mobility Light Vehicle Sales April 2022 as well as production nameplate and propulsion system design data from S&P Global Mobility Automotive Light Vehicle Transmission + Engine Forecast, April 2022.

2 Ipsos. (2022, June 2). Ipsos Mobility Navigator Module 1: Electrification. Ipsos.

3 Oak Ridge National Laboratory for the U.S. Department of Energy and the U.S. Environmental Protection Agency. (2023, 03 17). 2023 Best and Worst Fuel Economy Vehicles. Retrieved from www.fueleconomy.gov: https://www.fueleconomy.gov/feg/best-worst.shtml. Retrieved from U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy.

4 Oak Ridge National Laboratory for the U.S. Department of Energy and the U.S. Environmental Protection Agency. (2023). 2023 Ford F150. Retrieved from U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy: https://www.fueleconomy.gov/feg/bymodel/2023_Ford_F150.shtml.

5 As of July 2022.

6 Experian Information Solutions, Inc. (2023). Auto Finance Year-in-Review Electric Vehicles & Affordability.

7 Reuters. (2023, March 6). Tesla cuts U.S. Model S and Model X prices between 4% and 9%. Retrieved from Reuters: https://www.reuters.com/business/autos-transportation/tesla-cuts-prices-model-y-model-x-variants-us-website-2023-03-06/.

8 Eckert, N., & Feuer, W. (2023, January 30). Ford Cuts Prices of EV Mustang Mach-E. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/ford-cuts-prices-of-ev-mustang-mach-e-11675090387.

9 Baker, D. R. (2022, December 6). EV Transition Threatened as Battery Prices Rise for First Time. Bloomberg.

10 Experian Information Solutions, Inc. (2022). State of the Automotive Finance Market Report.

11 Burnham, A., Gohlke, D., Rush, L., Stephens, T., Zhou, Y., Delucchi, M. A., . . . Boloor, M. (2021). Comprehensive Total Cost of Ownership Quantification for Vehicles with Different Size Classes and Powertrains. USDOE Office of Energy Efficiency and Renewable Energy, Argonne National Lab.

12 GM, Stellantis, Ford.

13 Heines, D. F. (2022, December). Digital Capability Building: Solving the key Transformation Bottleneck. Berylls Strategy Advisors. Munich, Germany.

Authors
Andreas Radics

Executive Partner

Arthur Kipferler

Partner

Martin French

Managing Director US

Henning Ludes

Associate Partner

Cameron Gormley

Senior Consultant

Samuel Schramm

Research

Henning Ludes

Henning joined Berylls in 2018, is an Associate Partner at the Berylls Group and is currently completing a regional assignment in Detroit to further expand our local footprint. Henning particularly focuses on topics at the interface of new business development, go-to-market strategies, sales as well as organizational transformation. He has advised automotive manufacturers, suppliers and investors on a global scale.

As an MSc. Management graduate, Henning has completed his education at WHU – Otto Beisheim School of Management (Germany), Kellogg School of Management, Northwestern University (United States) and Warwick Business School (United Kingdom).

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Cameron Gormley

Cameron Gormley joined Berylls Strategy Advisors US in July 2022 as a Senior Consultant. Cameron has deep knowledge of the US electric vehicle (EV) infrastructure, policy, and regulatory landscape and its role as a key driver of EV penetration.  He advises clients on topics of electrification strategy and business model development across all vehicle segments. Other areas of expertise include market analysis, go-to-market strategy, strategic planning, customer strategy, and PMO.

Cameron received a Bachelor of Science in Mechanical Engineering at Western New England University (2015) and holds a Project Management Professional (PMP) certification (2021).

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Martin French

Martin French has over 25 years of experience in automotive OEM, Tier 1 suppliers & mobility startups with various high-profile international leadership, product development, operational, program management, strategic & business development roles. In 2012, after holding various senior management positions, he was appointed Global Vice President Customer Group at Webasto where he led the global business transformation for their US based customers with over $1bn in revenue.
Martin joined Berylls by AlixPartners (formerly Berylls Strategy Advisors) as Managing Director in 2019 and leads the Berylls office in Metro Detroit, USA. His consulting focus is Automotive Suppliers & OEMs, Corporate Strategy & Business models, M&A, Restructuring & New Business Development & Go to Market.
Martin studied Production & Mechanical Engineering at Oxford Brookes University. He has lived in Michigan, USA, since 2012.

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